IFRS and Global Accounting Standards
Mock Exam
Course Introduction
This course explores the foundational concepts, principles, and applications of International Financial Reporting Standards (IFRS) and examines their significance in promoting global consistency and transparency in financial reporting. Students will gain an understanding of the framework, structure, and key requirements of IFRS, while analyzing the differences between IFRS and national accounting standards. The course highlights the challenges and benefits of adoption, addresses the convergence process, and investigates practical issues faced by multinational companies in financial statement preparation, presentation, and disclosure. Real-world case studies and current developments will equip students with the skills to interpret and apply global accounting standards in a dynamic international business environment.
Recommended Textbook
Advanced Accounting Global 12th Edition by Floyd A. Beams
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Chapter 1: Business Combinations
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Q1) Under the current GAAP, Goodwill arising from a business combination is
A) charged to Retained Earnings after the acquisition is completed.
B) amortized over 40 years or its useful life, whichever is longer.
C) amortized over 40 years or its useful life, whichever is shorter.
D) never amortized.
Answer: D
Q2) Which of the following is not a reason for a company to expand through a combination, rather than by building new facilities?
A) A combination might provide cost advantages.
B) A combination might provide fewer operating delays.
C) A combination might provide easier access to intangible assets.
D) A combination might provide an opportunity to invest in a company without having to take responsibility for its financial results.
Answer: D
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Chapter 2: Stock Investments - Investor Accounting and Reporting
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Q1) Assume that Pansy has significant influence and uses the equity method of accounting for its investment in Sunflower. The balance in the Investment in Sunflower account at December 31, 2015 was
A) $78,200.
B) $80,000.
C) $81,800.
D) $83,300.
Answer: C
Q2) Firms must conduct impairment tests more frequently than annually when A) other shareholders hold more than 50% interest.
B) a "more likely than not" expectation exists that a reporting unit will be sold or disposed of.
C) a specific unit does not have publicly traded stock.
D) using the equity method.
Answer: B
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Chapter 3: An Introduction to Consolidated Financial Statements
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Q1) Push-down accounting
A) requires a subsidiary to use the same accounting principles as its parent company.
B) is required when the parent company uses the equity method to account for its investment in a subsidiary.
C) is required when the parent company uses the cost method to account for its investment in a subsidiary.
D) is the process of recording the effects of the purchase price assignment directly on the books of the subsidiary.
Answer: D
Q2) From the standpoint of accounting theory, which of the following statements is the best justification for the preparation of consolidated financial statements?
A) In substance the companies are separate, but in form the companies are one entity.
B) In substance the companies are one entity, but in form they are separate.
C) In substance and form the companies are one entity.
D) In substance and form the companies are separate entities.
Answer: B
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Chapter 4: Consolidated Techniques and Procedures
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Q1) What is the amount of consolidated Retained Earnings?
A) $224,000
B) $259,200
C) $304,000
D) $324,000
Q2) On consolidated working papers, a subsidiary's net income is
A) deducted from beginning consolidated retained earnings.
B) deducted from ending consolidated retained earnings.
C) allocated between the noncontrolling interest share and the parent's share.
D) only an entry in the parent company's general ledger.
Q3) When preparing consolidated financial statements, which of the following is a subtraction in the calculation of cash flows from operating activities under the indirect method?
A) The change in the balance sheet of the common stock account
B) Noncontrolling interest dividends paid
C) Noncontrolling interest share
D) Undistributed income of equity investees
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Chapter 5: Intercompany Profit Transactions Inventories
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Q1) Salli Corporation regularly purchases merchandise from their 90% owner, Playtime Corporation. Playtime purchased the 90% interest at a cost equal to 90% of the book value of Salli's net assets. At the time of acquisition, the book values and fair values of Salli's assets and liabilities were equal. Playtime makes their sales to Salli at 120% of cost. In 2014, Salli reported net income of $460,000, and made purchases totaling $172,000 from Playtime. Although Salli had no inventory on hand at the beginning of 2014 that they had purchased from Playtime, at year end, they had $51,600 of this merchandise in inventory.
Required:
1. Determine the unrealized profit in Salli's inventory at December 31, 2014.
2. Compute Playtime's income from Salli for 2014.
Q2) If the sale referred to above was a downstream sale, the total sales revenue reported in the consolidated income statement for 2014 would be
A) $870,000.
B) $880,000.
C) $920,000.
D) $970,000.
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Page 7
Chapter 6: Intercompany Profit Transactions Plant Assets
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Q1) Pied Imperial Corporation acquired a 90% interest in Somest Corporation in 2012 when Somest's book values were equivalent to fair values. Somest sold equipment with a book value of $80,000 to Pied for $130,000 on January 1, 2014. Pied is fully depreciating the equipment over a 4-year period by using the straight-line method. Somest reported net income for 2014 was $320,000. Pied's 2014 income from Somest was
A) $249,250.
B) $250,500.
C) $254,250.
D) $288,000.
Q2) Which of the following is correct?
A) No consolidation working paper entry is required for this transaction in 2014.
B) A consolidation working paper entry is required only if the subsidiary was less than 100% owned in 2014.
C) A consolidation working paper entry is required each year that Sidd has the land. D) A consolidated working paper entry was required only if the land was held for resale in 2014.
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Chapter 7: Intercompany Profit Transactions Bonds
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Q1) Consolidated Interest Expense and consolidated Interest Income, respectively, that appeared on the consolidated income statement for the year ended December 31, 2013 was
A) $10,800 and $0.
B) $10,800 and $6,600.
C) $0 and $0.
D) $16,200 and $6,600.
Q2) Snackle Inc. is a 90%-owned subsidiary of Pasha Corp. On January 1, 2013, Snackle issued $400,000 of $1,000 face amount 8% bonds at $964 per bond. Interest is paid on January 1 and July 1 of each year and covers the preceding six months. On July 2, 2014, Pasha purchased all 400 bonds on the open market for $1,030 per bond. The bonds mature on December 31, 2015. Both companies use straight-line amortization.
Required: With respect to the bonds, use General Journal format to:
1. Record the 2014 journal entries from July 1 to December 31 on Pasha's books.
2. Record the 2014 journal entries from July 1 to December 31 on Snackle's books.
3. Record the elimination entries for the consolidation working papers for the year ending December 31, 2014.
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Chapter 8: Consolidations - Changes in Ownership
Interests
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Q1) Which of the following is correct? The direct sale of additional shares of stock at book value per share to only the parent company from a subsidiary
A) decreases the parent's interest and decreases the noncontrolling shareholders' interest.
B) decreases the parent's interest and increases the noncontrolling shareholders' interest.
C) increases the parent's interest and increases the noncontrolling shareholders' interest.
D) increases the parent's interest and decreases the noncontrolling shareholders' interest.
Q2) A 15% stock dividend by a subsidiary causes
A) the parent company investment account to decrease.
B) the parent company investment account to remain the same.
C) the parent company investment account to increase.
D) the noncontrolling interest equity to increase.
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Chapter 9: Indirect and Mutual Holdings
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Q1) Paco Corporation owns 90% of Aber Corporation, Aber Corporation owns 85% of Back Corporation, and Back Corporation owns 5% of Aber Corporation. The separate net incomes (excluding investment income) of Paco, Aber, and Back are $100,000, $40,000, and $55,000, respectively. Assume the investments were acquired at a cost equal to the book value of each investment, which also equals the fair value.
Required:
1. Calculate revised net incomes for Paco, Aber, and Back by using the conventional method.
2. Determine the controlling interest share of consolidated net income and the noncontrolling interest shares.
Q2) The amount of noncontrolling interest share for the current year is
A) $69,000.
B) $85,000.
C) $95,000.
D) $99,000.
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Chapter 10: Subsidiary Preferred Stock,
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Q1) Assume a company's preferred stock is cumulative with a call provision and has dividends in arrears. The amount of stockholders' equity allocated to preferred stockholders is equal to the number of shares outstanding times the
A) sum of the par value per share plus any liquidation premium per share, plus the sum of any preferred dividends in arrears, plus the current year's dividend requirement, but only if dividends have been declared.
B) sum of the par value per share, plus any liquidation premium per share, plus the sum of any preferred dividends in arrears, plus the current year's dividend requirement, regardless of whether dividends have been declared.
C) call price plus the sum of any preferred dividends in arrears, plus the current year's dividend requirement, but only if dividends have been declared.
D) call price plus the sum of any preferred dividends in arrears, plus the current year's dividend requirement, regardless of whether dividends have been declared.
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Chapter 11: Consolidation Theories, Push-Down Accounting, and Corporate Joint Ventures
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Q1) Assume Paris's inventory account had a book value of $40,000 and a fair value of $44,000 on January 1, 2014. Using the parent company theory, what was the amount reported on the consolidated balance sheet for inventories on January 1, 2014?
A) $65,000
B) $66,000
C) $69,000
D) $70,000
Q2) Goodwill was reported in the December 31, 2014 consolidated balance sheet at A) $170,000.
B) $180,000.
C) $200,000.
D) $210,000.
Q3) Under parent company theory, the amount of consolidated net income is equal to the amount of ________ under entity theory.
A) noncontrolling interest share
B) noncontrolling interest income
C) income attributable to controlling stockholders
D) income attributable to noncontrolling stockholders
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Chapter 12: Derivatives and Foreign Currency: Concepts and Common Transactions
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Q1) What is the final amount of the loan payable that Sooty repaid?
A) $250,000
B) $287,500
C) $397,500
D) $402,500
Q2) Jefferson Company entered into a forward contract with Washington Company on October 1, 2014, under which Jefferson agreed to buy (and Washington agreed to sell) 10,000 tons of coal at $80.00 per ton in 90 days. On October 1, 2014, the price of coal is $82.00 per ton. On December 29, 2014, the price of coal is $85.00 per ton. The contract allows for net settlement.
Required:
Determine the net settlement on the forward contract.
Q3) On April 1, 2014, Button Industries enters into an agreement with Bows Incorporated to lock in the price of cotton. Button agrees to purchase (and Bows agrees to sell) 100,000 pounds of cotton at $1.19 per pound, six months from the date of agreement. On October 1, 2014, the price of cotton is $1.17 per pound. The contract allows for net settlement.
Required:
Determine the net settlement on the forward contract.
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Chapter 13: Accounting for Derivatives and Hedging
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Q1) A highly-effective hedge of an existing asset or liability that is reported on the balance sheet would be recorded using
A) Modified Cash Basis Accounting.
B) Critical Term Hedge Analysis.
C) Fair Value Hedge Accounting.
D) Hedge of Net Investment in Foreign Subsidiary.
Q2) If a financial instrument is classified as a cash flow hedge, then
A) its gains or losses are reported in the income statement if a fiscal year-end occurs before the settlement date.
B) it is classified as a held-to-maturity asset.
C) it does not require a notional amount.
D) its gains or losses are reported in the balance sheet if a fiscal year-end occurs before the settlement date.
Q3) The purchase price of an option contract is typically recorded as A) an expense.
B) an asset.
C) an amortized cost.
D) a component of shareholders equity.
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Chapter 14: Foreign Currency Financial Statements
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Q1) When translating foreign subsidiary income statements using the current rate method, why are some accounts translated at an average rate?
A) This approach improves matching.
B) This approach accentuates the conservatism principle.
C) This approach smoothes out highly volatile exchange rate fluctuations.
D) This approach approximates the effect of transactions which occur continuously during the period.
Q2) All of the following factors would be used to define a foreign entity's functional currency, except
A) high volume of intercompany transactions.
B) expenses for foreign entity primarily driven by local factors.
C) financing for foreign entity denominated in local currency.
D) foreign entity's status as a local tax haven for transfer pricing purposes.
Q3) Accounts representing an allowance for uncollectible accounts are converted into U.S. dollars at
A) historical rates when the U.S. dollar is the functional currency.
B) current rates only when the U.S. dollar is the functional currency.
C) historical rates regardless of the functional currency.
D) current rates regardless of the functional currency.
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Chapter 15: Segment and Interim Financial Reporting
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Q1) What is the purpose of interim reporting?
A) Provide shareholders with more timely information
B) Provide shareholders with more accurate information
C) Provide shareholders with more extensive detail about specific accounts and transactions
D) Provide shareholders with more current audited information
Q2) Which of the following is not a quantitative threshold for determining a reportable segment?
A) Segment assets are 10% or more of the combined assets of all operating segments.
B) The absolute value of a segment's profit or loss is 10% or more of the greater of (1) the combined reported profit of all operating segments that reported a profit or (2) the absolute value of the combined reported loss of all operating segments that reported a loss.
C) Segment reported revenue, including intersegment revenues, is 10% or more of the combined revenue (both internal and external) of all operating segments.
D) Segment residual profit after the cost of equity is 10% or more of the combined residual profit of all operating segments.
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Chapter 16: Partnerships - Formation, Operations, and Changes in Ownership Interests
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Q1) In the Uniform Partnership Act, partners have I. mutual agency. II) unlimited liability.
A) I only
B) II only
C) I and II
D) Neither I nor II
Q2) The profit and loss sharing agreement for the Tuttle, Upman, and Veer partnership provides for residual profits and losses to be allocated 2:3:6 to Tuttle, Upman, and Veer, respectively. In 2014, the partnership recorded $11,000 of net income that was properly allocated to the partners' capital accounts. On January 18, 2015, after the books were closed for 2014, Tuttle discovered that the $16,500 payment for the partnership's liability and workers compensation insurance for 2015 was recorded as insurance expense when it was paid on December 28, 2014.
Required:
Prepare the necessary correcting entry(s) for the partnership.
Q3) What goodwill will be recorded?
A) $ 80,000
B) $240,000
C) $320,000
D) $400,000
Page 18
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Chapter 17: Partnership Liquidation
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Q1) Which of the following procedures is acceptable when accounting for a deficit balance in a partner's capital account during partnership liquidation, if the partner with a negative capital balance is personally insolvent?
A) The partner with a negative capital balance must contribute personal assets to the partnership that are sufficient to bring the capital account to zero.
B) The negative capital balance may be absorbed by those partners having a positive capital balance according to the residual profit and loss sharing ratios that apply to all the partners.
C) The negative capital balance may be absorbed by those partners having a positive capital balance according to the residual profit and loss sharing ratios that apply to those partners having positive balances.
D) The partner with a negative capital balance must contribute personal assets to the partnership that are sufficient to bring the capital account to the same level of the other partners' capital accounts.
Q2) A cash distribution plan for the Sammi, Tammy, and Udd partnership was as follows:
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Chapter 18: Corporate Liquidations and Reorganizations
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Q1) Which of the following does not occur for a trustee in a Chapter 7 bankruptcy case?
A) Gains and losses on the sale of assets are debited to the estate equity account.
B) Unrecorded liabilities discovered by the trustee are debited to the estate equity account and credited to the liability account.
C) Liquidation expenses are debited to the estate equity account.
D) An income statement is prepared showing gains and losses on sale of assets.
Q2) What is an advantage of filing a Chapter 11 petition?
A) The continuation of interest accrual on liabilities
B) Restrictions imposed by the bankruptcy court on day-to-day transactions
C) It is less costly than filing Chapter 7.
D) The opportunity to cancel unfavorable contracts
Q3) Ohio Corporation is being liquidated under Chapter 7 of the Bankruptcy Act. The trustee has determined that the unsecured claims will receive $.05 on the dollar. Lender Bank holds a $100,000 mortgage note receivable from Ohio that is secured by equipment with a $120,000 book value and a $90,000 fair value, and a second mortgage on the same equipment amounting to $50,000.
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Chapter 19: An Introduction to Accounting for State and Local Governmental Units
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Q1) The following are transactions for the city of Franklin.
a. Borrowed $20,000 by issuing a two-year note.
b. Purchased equipment for $6,000 cash.
c. Licenses for $700 were billed on account.
d. Accrued employee salary costs of $7,000.
e. Depreciation expense on equipment for year, $1,000.
Required:
Analyze the above transactions by using the accounting equation for a proprietary fund.
Q2) Approved or authorized expenditures that provide legislative control over the expenditure budget are referred to as
A) appropriations.
B) allotments.
C) allocations.
D) encumbrances.
Q3) A comprehensive annual financial report has the following three major sections:
A) introductory, financial, and management's discussion and analysis.
B) introductory, financial, and statistical.
C) transmittal, financial, and statistical.
D) transmittal, financial, and management's discussion and analysis.
Page 21
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Chapter 20: Accounting for State and Local Governmental Units
- Governmental Funds
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Q1) Prepare journal entries to record the following grant-related transactions for a municipality's special revenue fund.
1. Special Revenue Fund awarded an operating grant from the state, $2,500,000 (cash will be received after qualified expenditures are made).
2. Special Revenue Fund received funds of $1,600,000, temporarily transferred from the General Fund.
3. Incurred qualifying expenditures on the state grant program of $1,600,000 and paid them with funds temporarily transferred from the General Fund.
4. Received a federal grant to finance planting of trees in city, $4,500,000 (cash received in advance).
5. Incurred and paid cost of $3,000,000 for planting 10,000 trees in city.
Q2) At any point in time, a government will be able to spend an amount equal to A) appropriations minus expenditures.
B) appropriations minus expenditures minus encumbrances.
C) appropriations minus encumbrances.
D) expenditures minus encumbrances.
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Chapter 21: Accounting for State and Local Governmental
Units - Proprietary and Fiduciary Funds
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Q1) Journalize the following utility transactions in the Hazzard County Enterprise Fund:
1. The utility sold $4,000,000 of 6.5% revenue bonds at 98 on July 1, 2014 (an interest payment date). The bond proceeds are to be used for new plant construction and the issue will mature in 20 years. Interest is paid semi-annually on July 1 and January 1.
2. Depreciation for the year-ended December 31, 2014 included $300,000 for buildings and $190,000 for equipment.
3. The utility paid $600,000 in construction costs for the new plant. The plant is still under construction.
4. Interest on the revenue bonds was accrued at year-end, December 31, 2014. Straight-line amortization is used for bond discounts and premiums.
Q2) What basis of accounting is used by fiduciary funds?
A) Modified accrual accounting
B) Accrual accounting
C) Cash basis accounting
D) Present value accounting
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Chapter 22: Accounting for Not-For-Profit Organizations
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Q1) Which one of the following statements is not required for voluntary health and welfare organizations?
A) A statement of financial position
B) A statement of activities
C) A statement of functional expenses
D) A statement of changes in net assets
Q2) Under GAAP, for nonprofit, nongovernmental entities, an unconditional transfer of cash or other assets to an entity, or a settlement or cancellation of its liabilities in a voluntary, non-reciprocal transfer, is called a(n)
A) unconditional promise to give.
B) contribution.
C) conditional promise to give.
D) residual equity transfer.
Q3) A nongovernmental, not-for-profit entity is subject to: I. GASB
II) FASB
A) I only
B) II only
C) a combination of I and II depending on the entity's purpose
D) neither I or II
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Chapter 23: Estates and Trusts
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Q1) Cindy Lou's parents passed away while she was still dependent on them, and their will designated that a trust should be established with their estate proceeds to care for her. The following transactions occurred in the first two months following their deaths.
1. The trust account was opened with the $2,000,000 in funds received from the estate. The funds were deposited into a non-interest bearing checking account to be used for expenses.
2. $1,500,000 was put into a multi-year certificate of deposit which earned 3% annually, with interest paid monthly back to the checking account.
3. One month's interest from the certificates of deposit was received.
4. The bank's trust administration fee was paid for $65.
5. Tuition was paid for the boarding school where Cindy Lou was living for $6,500. Required:
Prepare the journal entries for the listed transactions. Disregard the impact of estate and income taxes.
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